The great wages grab

Despite the crash, the economy has almost doubled in size over the last thirty years. But most people at work have been cheated out of their fair share of that growth.

Since the start of the 1980s, the share of the economy going to wages has shrunk. And those with the highest salaries have done better than those below them. The result is that average workers now get a smaller section of a smaller pie.

The average full-time worker is now paid around £26,000 a year. But if wages had grown in line with economic growth, and if the gap between those right at the top and the rest had not increased, the average worker would now be getting £33,000 a year – a £7,000 pay rise.

This is not just unfair, but bad for the economy as it holds back growth.

Companies need customers with cash in their pockets. That is why the UK economy is scraping along the bottom. Employees are cutting back as their living standards are squeezed. And the public sector, far from making up the gap, is slashing spending too.

But this wages squeeze was a prime – or should we say sub-prime – cause of the crash. Excess profits and bonuses went into the finance system rather than new investment. Workers deprived of proper pay borrowed to make up the difference. And when bankers stopped considering risk before lending, we had started the inevitable slide to the global crash.

Of course the wage share of the economy will change from year to year. But for thirty years after the Second World War it was relatively constant. In the 1970s during the oil shock and high inflation it was arguably too high, but then fell back. That is why we have taken 1980 as our starting point.

That is also when we started the three decades of deregulation, growing inequality and letting the market rip that led to the crash. It was when governments stopped caring about industrial policy or balancing the economy. And when the cult of the ‘private sector knows best’ began.

The austerity economics of this government fails to learn why the economy crashed. Ministers want to go back to business as usual, continuing to hold down the wages of ordinary employees.

Of course we cannot close that wage gap overnight, nor deny the difficult challenges economies face after the crash. But current policies fail to understand the causes of our problems or to set out how to build an economy that delivers decent jobs, wages and prospects for all our citizens.

That is why this week the TUC will campaign for a future that works, and why on 20 October we will bring hundreds of thousands to London to argue for an alternative to austerity.

Written by Brendan Barber

Brendan is a former General Secretary of the TUC, the 9th person to hold the position since its introduction in 1922. He worked with the organisation from 1975 until his retirement in 2012, and was elected General Secretary by the TUC’s General Cou…